The Economic Formula Driving Progress Across the Energy Transition

This article was updated on July 2025.

Achieving the energy transition requires an enormous investment, and while progress has been made, we all agree that there is much more to do. Even with global commitments at forums to increase renewable energy capacity, current projections suggest we’re not on track to keep global average surface warming below 1.5 degrees Celsius.

The transition continues to advance, despite continuing demand for fossil fuels. But with trade tensions rising, geopolitical relationships unstable, and interest rates still elevated, this is a defining moment. Governments, investors, and companies must come together to provide more capital, more coordination, and more speed.

The Formula for Advancing the Energy Transition

The economic formula for the energy transition and the adoption of new renewable technologies is theoretically simple. Investment leads to innovation, which we then pair with validation. Validation ensures that a given technology can stand up to real-world conditions and scale at a reasonable deployment level, which helps reduce the risk for new investors to enter the field. This drives cost reduction and further innovation, which attracts more investment. The demand also reacts to the attractive cost – especially when aided by incentives – encouraging adoption of new technologies and driving returns for investors. A virtuous cycle repeats.

Successfully navigating the energy transition calls for an unwavering focus on innovation, finance, and validation.

For this to happen, we must move with urgency, establish the correct conditions, and continue closing the gap between theory and reality. It’s also important that the right market incentives are in place – for instance, we have seen investors increasingly encourage companies to comply with their energy transition commitments. What’s more, financial incentives are the most influential factor for reducing a company’s carbon footprint, particularly when these incentives help reduce the cost of purchasing and implementing solutions to reduce energy use.

A Cross-Sector Approach to Energy Investment

It’s important to look at this multidimensional energy transition from different perspectives to best understand the role each stakeholder and sector plays. Successfully navigating the energy transition calls for an unwavering focus on innovation, finance, and validation. We’re also cultivating a strong understanding of markets, geopolitical issues, and their effects on investment.

To reach ambitious decarbonization goals by 2050, it’s clear that the solution lies in securing a diverse range of funding across corporations, tech investors, private equity, and infrastructure funds. In 2024, global spending in energy transition exceeded $2.1 trillion for the first time, an almost 11% increase over the previous year; however, we’re far behind the $5.6 trillion in annual investment from 2025 to 2030 required to maintain a net zero trajectory.

Clean energy investments, including investments in clean energy supply chain, continue to be a key priority when it comes to the energy transition, and for good reason. These investments target cost-efficiency, energy reliability, and sustainability, addressing the energy trilemma.

While the current economic conditions have impacted the investment appetite, private funding remains one of the most important inputs for reaching net zero goals. For example, the Inflation Reduction Act (IRA) led to significant investments across clean-hydrogen projects, which we’re still experiencing the legacy effects of. In a similar vein, China’s solar photovoltaic (PV) investment highlights how government policies can provide incentives and certainty to scale solutions, and support from the public and private sectors will help spur additional investment.

The Critical Link in the Formula

Federal incentives and funding can provide a crucial role in enabling more projects and increasing the cost-competitiveness of new technologies. Compared to solutions that are fully commercialized and scaled, it’s harder to secure investment from private equity and debt providers for newer, smaller-scale technologies that may not yet be proven.

Case in point: The main reason that large-scale projects are brought online today is because companies provide the capital and address the risk themselves by investing from their own balance sheets. This is where increased validation will play a key role in driving critical third-party investments for sizable new projects. When advancing the energy transition and scaling existing technologies, validation in new solutions and models will ensure these solutions are viable before they’re added to the grid.

Validation is also a critical part of creating the right conditions for driving the investment we need to successfully achieve the energy transition.

Validation isn’t a future goal. We’re already doing it today. Our T-Point 2 facility is specifically designed for validating power solutions and is part of Takasago Hydrogen Park, the world’s first integrated hydrogen validation facility. Here, we develop and test technologies under real-world conditions to ensure operability before joining the grid, giving key stakeholders the confidence and security to invest in large-scale hydrogen solutions. Validation is also a critical part of creating the right conditions for driving the investment we need to successfully achieve the energy transition.

At Mitsubishi Power, we focus on bringing stakeholders together to drive the development of new technologies, such as clean hydrogen. We couple that with expertise in validation, which demonstrates how companies can embody a multidimensional approach to advance the transition. We can then partner with our customers and other stakeholders to put these new technologies into practice, as evidenced by the Advanced Clean Energy Storage Hub in Delta, Utah.

The energy transition, after all, is a coordination challenge. The tools exist. The urgency is real. What matters now is aligning action at scale, and moving fast enough to make a meaningful impact.